Truth Squad: Does Paul's WWII anecdote ring true?

By Matt Smith, CNN

Updated 2:32 AM ET, Fri January 20, 2012

The statement: "After World War II, we had 10 million come home all at once. But what did we do then? There were some of the liberals back then that said, 'Oh, we have to have more work programs and do this and that.' And they thought they would have to do everything conceivable for those 10 million. They never got around to it because they came home so quickly. And you know what the government did? They cut the budget by 60%. They cut taxes by 30%. By that time, the debt had been liquidated. And everybody went back to work again, you didn't need any special programs." -- Rep. Ron Paul, at Thursday night's Republican presidential debate in South Carolina.

The facts: The end of World War II did see a sharp decrease in federal spending as the United States demobilized. The U.S. budget grew nearly tenfold between 1940 and 1945, peaking at about $93 billion -- $1.2 trillion in today's dollars. By 1948, it had fallen to $30 billion, or about a third of 1945 outlays, according to federal records.

Taxes went down as well during that period, though rates stayed high. The top tax rate in 1945 was 94%. The rate was cut to 91% by 1948, and the threshold for paying that rate went up from about $200,000 to more than 1.8 million in current dollars, according to the Tax Foundation, a nonpartisan Washington research group.

But demobilization was not as smooth as Paul portrays. The U.S. economy saw two recessions between 1945 and 1950 as veterans returned home and factories retooled for civilian work. The war bonds sold to finance the conflict weren't retired until the early 1980s, according to the Treasury Department, though revenue from the eventual postwar boom kept the debt manageable. The top tax rate stayed at 91% until the Kennedy administration.

Most significantly, the libertarian congressman underplays the role of the federal government in helping veterans coming home. The Employment Act of 1946 "committed the federal government to take all practical measures to promote maximum employment, production, and purchasing power," according to a 2003 study by the Bureau of Labor Statistics.

Then there is the law many historians consider one of the most significant pieces of legislation of the 20th century: the Servicemen's Readjustment Act of 1944, better known as the G.I. Bill. It sent millions of veterans to college, provided government backing for home loans and is credited with laying the foundations of the modern middle class.

The verdict: Misleading. Paul is correct that spending and taxes came down after 1945, as would be expected at the end of a conflict that saw the entire might of the United States thrown into the war effort. But he leaves out both the long-term debt and high tax rates left behind as Washington paid off the war, and gives short shrift to the efforts made to resettle veterans who came home.